1997 SEMIANNUAL REPORT
IDS
Federal
Income
Fund
(icon of) shield with eagle head
The goals of IDS Federal Income Fund, Inc. are to provide shareholders with a
high level of current income and safety of principal consistent with investment
in U.S. government and government agency securities.
AMERICAN EXPRESS Financial Advisors
Distributed by American Express Financial Advisors Inc.
<PAGE>
(icon of) shield with eagle head
A comfortable compromise
Balancing risk and reward is something all investors must consider. In the
fixed-income area, intermediate-term securities issued by the federal government
and its agencies offer a good middle ground. These securities, which form the
core of Federal Income Fund, normally provide greater investment stability than
long-term bonds, while still offering a yield higher than that of guaranteed
investments such as bank CDs. For a conservative investor, that can be a
rewarding combination.
Contents
From the chairman 3
From the portfolio manager 3
Financial statements (Fund) 5
Notes to financial statements (Fund) 8
Financial statements (Portfolio) 20
Notes to financial statements (Portfolio) 23
Investments in securities 30
Board members and officers 35
IDS mutual funds 36
<PAGE>
To our shareholders
From the chairman
If you're an experienced investor, you know that the past few years have
been unusually strong in many financial markets. Perhaps just as
important, history shows that bull markets don't last forever. Though
they're often unpredictable, declines -- whether they're brief or
long-lasting, moderate or substantial -- are always a possibility. We saw
evidence of that in late October, when declines in certain Asian markets
spawned a sharp drop in several financial markets worldwide, including the
U.S.
That fact reinforces the need for investors to periodically review their
long-term goals and examine whether their investment program remains on
track to achieving them. Your quarterly investment statements are one part
of that monitoring process. The other is a meeting with your American
Express financial advisor. That becomes even more important if there's a
major change in your financial situation or in the financial markets.
William R. Pearce
(picture of) William R. Pearce
William R. Pearce
Chairman of the board
<PAGE>
From the portfolio manager
A remarkably low inflation rate paved the way for an overall decline in
interest rates and, in turn, higher bond prices during the past six
months. Taking advantage of the positive trend, IDS Federal Income Fund's
Class A shares generated a total return (net asset value change and
dividends) of 4.3% for the first half of its fiscal year -- June
through November 1997.
Despite considerable worry on the part of some observers that ongoing
economic growth would soon send consumer prices higher, inflation remained
wonderfully well-behaved throughout the six months. The result was that,
aside from a temporary run-up in August, interest rates worked their way
gradually lower. As is their nature, bond prices responded by moving
higher.
A safe haven
The bond market also benefited from an unexpected factor at work in the
last several weeks of the period, when several foreign markets were in
turmoil.
Seeking a safe haven for their investments, they poured money into U.S.
bonds, which provided further support for prices.
The Fund's assets were largely divided between short- and
intermediate-term U.S. Treasury bonds and mortgage-backed bonds issued by
agencies of the federal government. Although both sectors provided the
Fund with positive performance, the prices of the Treasury investments
benefited most from the decline in interest rates. (Conversely, when rates
are stable or rising slightly, mortgage-backed bonds perform better
because homeowners are less likely to refinance their mortgages.) The only
notable negative for the Fund was its investments in interest-rate futures
contracts, which produced a loss during the period.
Less emphasis on `mortgages'
Usually, 70% or more of the assets are invested in mortgage-backed
securities. However, because of their already-high prices, I reduced those
holdings considerably early in the period and shifted more money into
Treasury securities, some of it in the form of options. In addition, I
gradually lowered the level of cash reserves in the portfolio from about
11% to about 4%, putting that money to work in longer-term securities that
earned a better return.
Looking to the rest of the fiscal year, my biggest concern is that the
ongoing strength of the economy may put upward pressure on inflation and,
thus, on interest rates. Apart from that, some favorable factors remain at
work: At this point, inflation is still subdued; the federal deficit is
still shrinking; and the U.S. bond market continues to attract substantial
investment capital, both domestic and foreign. As long as those
fundamentals are intact, I would expect bonds to perform well.
James W. Snyder
(picture of) James W. Snyder
James W. Snyder
Portfolio manager
<PAGE>
Class A
6-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1997 $ 5.04
May 31, 1997 $ 4.98
Increase $ 0.06
Distributions
June 1, 1997 - Nov. 30, 1997
From income $ 0.15
From capital gains $ --
Total distributions $ 0.15
Total return* + 4.3%**
Class B
6-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1997 $ 5.04
May 31, 1997 $ 4.98
Increase $ 0.06
Distributions
June 1, 1997 - Nov. 30, 1997
From income $ 0.13
From capital gains $ --
Total distributions $ 0.13
Total return* + 3.9%**
Class Y
6-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1997 $ 5.04
May 31, 1997 $ 4.97
Increase $ 0.07
Distributions
June 1, 1997 - Nov. 30, 1997
From income $ 0.15
From capital gains $ --
Total distributions $ 0.15
Total return* + 4.3%**
*The prospectus discusses the effect of sales charges, if any, on the
various classes.
**The total return is a hypothetical investment in the Fund with all
distributions reinvested.
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Federal Income Fund, Inc.
Nov. 30, 1997
Assets
(Unaudited)
<S> <C>
Investment in Government Income Portfolio (Note 1) $2,375,382,715
--------------
Total assets 2,375,382,715
-------------
Liabilities
Dividends payable to shareholders 1,118,302
Accrued distribution fee 38,029
Accrued service fee 22,213
Accrued transfer agency fee 6,379
Accrued administrative services fee 6,009
Other accrued expenses 646,846
-------
Total liabilities 1,837,778
---------
Net assets applicable to outstanding capital stock $2,373,544,937
==============
Represented by
Capital stock-- of $.01 par value (Note 1) $ 4,711,094
Additional paid-in capital 2,374,470,671
Undistributed net investment income 1,432,189
Accumulated net realized gain (loss) (Note 4) (72,118,590)
Unrealized appreciation (depreciation) on investments 65,049,573
----------
Total-- representing net assets applicable to outstanding capital stock $2,373,544,937
==============
Net assets applicable to outstanding shares: Class A $1,326,488,963
Class B $ 929,939,445
Class Y $ 117,116,529
Net asset value per share of outstanding capital stock: Class A shares 263,282,241 $ 5.04
Class B shares 184,582,824 $ 5.04
Class Y shares 23,244,364 $ 5.04
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of operations
IDS Federal Income Fund, Inc.
Six months ended Nov. 30, 1997
Investment income
(Unaudited)
Income:
<S> <C>
Interest $78,944,600
-----------
Expenses (Note 2):
Expenses allocated from Government Income Portfolio 5,928,402
Distribution fee-- Class B 3,317,773
Transfer agency fee 1,090,827
Incremental transfer agency fee-- Class B 24,163
Service fee
Class A 1,134,776
Class B 768,779
Class Y 56,988
Administrative services fees and expenses 540,803
Compensation of board members 5,102
Postage 175,802
Registration fees 300,434
Reports to shareholders 1,135
Audit fees 5,250
Other 130
---
Total expenses 13,350,364
Earnings credits on cash balances (Note 2) (184,063)
--------
Total net expenses 13,166,301
----------
Investment income (loss) -- net 65,778,299
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions 22,454,705
Financial futures contracts (39,605,741)
Options contracts written (3,645,619)
----------
Net realized gain (loss) on investments (20,796,655)
Net change in unrealized appreciation (depreciation) on investments 48,666,966
----------
Net gain (loss) on investments 27,870,311
----------
Net increase (decrease) in net assets resulting from operations $93,648,610
===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
IDS Federal Income Fund, Inc.
Operations and distributions
Six months ended Year ended
Nov. 30, 1997 May 31, 1997
(Unaudited)
<S> <C> <C>
Investment income (loss)-- net $ 65,778,299 $ 115,437,006
Net realized gain (loss) on investments (20,796,655) (4,113,301)
Net change in unrealized appreciation (depreciation) on investments 48,666,966 22,506,159
---------- ----------
Net increase (decrease) in net assets resulting from operations 93,648,610 133,829,864
---------- -----------
Distributions to shareholders from:
Net investment income
Class A (38,972,796) (72,954,437)
Class B (22,968,698) (35,396,650)
Class Y (3,434,106) (6,929,452)
---------- ----------
Total distributions (65,375,600) (115,280,539)
----------- ------------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 545,427,073 985,973,729
Class B shares 556,475,622 900,211,049
Class Y shares 23,450,011 45,145,082
Reinvestment of distributions at net asset value
Class A shares 32,941,116 62,856,887
Class B shares 21,833,325 33,971,242
Class Y shares 3,411,721 6,929,452
Payments for redemptions
Class A shares (535,323,244) (888,331,026)
Class B shares (Note 2) (479,209,671) (639,794,803)
Class Y shares (25,851,264) (37,361,796)
----------- -----------
Increase (decrease) in net assets from capital share transactions 143,154,689 469,599,816
----------- -----------
Total increase (decrease) in net assets 171,427,699 488,149,141
Net assets at beginning of period 2,202,117,238 1,713,968,097
------------- -------------
Net assets at end of period $2,373,544,937 $2,202,117,238
============== ==============
Undistributed net investment income $ 1,432,189 $ 1,029,490
-------------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
IDS Federal Income Fund, Inc.
(Unaudited as to Nov. 30, 1997)
1
Summary of
significant
accounting policies
The IDS Federal Income Fund, Inc. is registered under the Investment
Company Act of 1940 (as amended) as a diversified, open-end management
investment company. The Fund has 10 billion authorized shares of capital
stock. The Fund offers Class A, Class B and Class Y shares. Class A shares
are sold with a front-end sales charge. Class B shares may be subject to a
contingent deferred sales charge and such shares automatically convert to
Class A shares during the ninth calendar year of ownership. Class Y shares
have no sales charge and are offered only to qualifying institutional
investors.
All classes of shares have identical voting, dividend, liquidation and
other rights, and the same terms and conditions, except that the level of
distribution fee, transfer agency fee and service fee (class specific
expenses) differs among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its relative
net assets.
Investment in Government Income Portfolio
Effective June 10, 1996, the Fund began investing all of its assets in
Government Income Portfolio (the Portfolio), a series of Income Trust, an
open-end investment company that has the same objectives as the Fund. This
was accomplished by transferring the Fund's assets to the Portfolio in
return for a proportionate ownership interest in the Portfolio. The
Portfolio invests primarily in U.S. government and government agency
securities.
The Fund records daily its share of the Portfolio's income, expenses and
realized and unrealized gains and losses. The financial statements of the
Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The Fund records its investment in the Portfolio at value that is equal to
the Fund's proportionate ownership interest in the net assets of the
Portfolio. The percentage of the Portfolio owned by the Fund at May 31,
1997 was 99.97%. Valuation of securities held by the Portfolio is
discussed in Note 1 of the Portfolio's "Notes to financial statements",
which are included elsewhere in this report.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
Federal taxes
Since the Fund's policy is to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders, no provision for
income or excise taxes is required.
Net investment income (loss) and net realized gains (losses) allocated
from the Portfolio may differ for financial statement and tax purposes
primarily because of the deferral of losses on certain futures contracts,
and losses deferred due to "wash sale" transactions. The character of
distributions made during the year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ from the year
that the income or realized gains (losses) were recorded by the Fund.
Dividends to shareholders
Dividends from net investment income, declared daily and payable monthly,
are reinvested in additional shares of the Fund at net asset value or
payable in cash. Capital gains, when available, are distributed along with
the last income dividend of the calendar year.
2
Expenses and
sales charges
In addition to the expenses allocated from the Portfolio, the Fund accrues
its own expenses as follows:
Effective March 20, 1995, the Fund entered into agreements with American
Express Financial Corporation (AEFC) for providing administrative services
and serving as transfer agent. Under its Administrative Services
Agreement, the Fund pays AEFC a fee for administration and accounting
services at a percentage of the Fund's average daily net assets in
reducing percentages from 0.05% to 0.025% annually. Additional
administrative service expenses paid by the Fund are office expenses,
consultants' fees and compensation of officers and employees. Under this
agreement, the Fund also pays taxes, audit and certain legal fees,
registration fees for shares, compensation of board members, corporate
filing fees, and any other expenses properly payable by the Fund and
approved by the board.
Under a separate Transfer Agency Agreement, American Express Client
Service Corporation (AECSC) maintains shareholder accounts and records.
The Fund pays AECSC an annual fee per shareholder account for this service
as follows:
oClass A $15.50
oClass B $16.50
oClass Y $15.50
Also effective March 20, 1995, the Fund entered into agreements with
American Express Financial Advisors Inc. for distribution and shareholder
servicing-related services. Under a Plan and Agreement of Distribution,
the Fund pays a distribution fee at an annual rate of 0.75% of the Fund's
average daily net assets attributable to Class B shares for
distribution-related services.
Under a Shareholder Service Agreement, the Fund pays a fee for service
provided to shareholders by financial advisors and other servicing agents.
The fee is calculated at a rate of 0.175% of the Fund's average daily net
assets attributable to Class A and Class B shares and commencing on May 9,
1997, the fee is calculated at a rate of 0.10% of the Fund's average daily
net assets attributable to Class Y shares.
Sales charges received by American Express Financial Advisors, Inc. for
distributing Fund shares were $18,308,105 for Class A and $400,142 for
Class B for the six months ended Nov. 30, 1997.
For the six months ended Nov. 30, 1997, the Fund's transfer agency fees
were reduced by $184,063 as a result of earnings credits from overnight
cash balances.
3
Capital share
transactions
Transactions in shares of capital stock for the periods indicated are as
follows:
Six months ended Nov. 30, 1997
Class A Class B Class Y
Sold 108,664,381 110,875,237 4,662,873
Issued for reinvested 6,554,881 4,344,257 678,942
distributions
Redeemed (106,620,186) (95,450,673) (5,150,809)
Net increase (decrease) 8,599,076 19,768,821 191,006
Year ended May 31, 1997
Class A Class B Class Y
Sold 198,719,225 181,331,273 9,099,651
Issued for reinvested 12,674,720 6,850,794 1,399,915
distributions
Redeemed (179,157,262) (128,994,759) (7,537,738)
Net increase (decrease) 32,236,683 59,187,308 2,961,828
4
Capital loss
carryover
For federal income tax purposes, the Fund had a capital loss carryover of
$8,714,523 at May 31, 1997, that if not offset by subsequent capital
gains, will expire in 2002 through 2006. It is unlikely the board will
authorize a distribution of any net realized gains until the available
capital loss carryover has been offset or expires.
<PAGE>
<TABLE>
<CAPTION>
Notes to financial statements
IDS Federal Income Fund
5
Financial
highlights
The tables below show certain important financial information for
evaluating the Fund's results.
Fiscal period ended May 31,
Per share income and capital changesa
Class A
1997c 1997 1996b 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $4.98 $4.92 $4.97 $4.85 $5.30 $5.19 $5.10 $5.00 $5.02 $5.02 $5.01
beginning of period
Income from investment operations:
Net investment .15 .32 .28 .32 .29 .32 .36 .42 .42 .40 .41
income (loss)
Net gains (losses) .06 .06 (.04) .11 (.31) .13 .09 .09 (.02) -- .01
(both realized
and unrealized)
Total from investment .21 .38 .24 .43 (.02) .45 .45 .51 .40 .40 .42
operations
Less distributions:
Dividends from net (.15) (.32) (.29) (.31) (.29) (.32) (.36) (.41) (.42) (.40) (.41)
investment income
Distributions from -- -- -- -- (.14) (.02) -- -- -- -- --
realized gains
Total distributions (.15) (.32) (.29) (.31) (.43) (.34) (.36) (.41) (.42) (.40) (.41)
Net asset value, $5.04 $4.98 $4.92 $4.97 $4.85 $5.30 $5.19 $5.10 $5.00 $5.02 $5.02
end of period
Ratios/supplemental data
Class A
1997c 1997 1996b 1995 1994 1993 1992 1991 1990 1989 1988
Net assets, end of period $1,326 $1,267 $1,095 $977 $1,025 $1,025 $834 $397 $234 $183 $183
(in millions)
Ratio of expenses to .87%e .90% .91%e .79% .76% .77% .79% .80% .82% .79% .80%
average daily net assetsd
Ratio of net income (loss) 5.98%e 6.37% 6.34%e 6.59% 5.64% 6.03% 6.93% 8.20% 8.53% 8.15% 8.24%
to average daily net assets
Portfolio turnover rate 89% 146% 115% 213% 304% 227% 104% 52% 104% 81% 143%
(excluding short-term
securities)
Total returnf 4.3% 7.7% 5.0% 9.3% (.5%) 9.0% 9.0% 10.8% 8.3% 8.4% 8.8%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b The Fund's fiscal year-end was changed from June 30 to May 31, effective 1996.
c Six months ended Nov. 30, 1997. (Unaudited).
d Effective fiscal year 1996, the expense ratio is based on total expenses of
the Fund before reduction of earnings credits on cash balances.
e Adjusted to an annual basis.
f Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fiscal period ended May 31,
Per share income and capital changesa
Class B Class Y
1997d 1997 1996c 1995b 1997d 1997 1996c 1995b
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $4.98 $4.92 $4.96 $4.87 $4.97 $4.92 $4.97 $4.87
beginning of period
Income from investment operations:
Net investment .13 .28 .26 .06 .15 .32 .29 .07
income (loss)
Net gains (losses) .06 .06 (.04) .14 .07 .05 (.04) .15
both realized
and unrealized)
Total from investment .19 .34 .22 .20 .22 .37 .25 .22
operations
Less distributions:
Dividends from net (.13) (.28) (.26) (.11) (.15) (.32) (.30) (.12)
investment income
Net asset value, $5.04 $4.98 $4.92 $4.96 $5.04 $4.97 $4.92 $4.97
end of period
Ratios/supplemental data
Class B Class Y
1997d 1997 1996c 1995b 1997d 1997 1996c 1995b
Net assets, end $930 $820 $520 $292 $117 $115 $99 $85
of period
(in millions)
Ratio of expenses 1.63%f 1.66% 1.67%f 1.74%f .80%f .73% .74%f .75%f
to average daily
net assetse
Ratio of net income 5.23%f 5.60% 5.59%f 6.21%f 6.06%f 6.54% 6.53%f 7.20%f
(loss) to average
daily net assets
Portfolio turnover 89% 146% 115% 213% 89% 146% 115% 213%
rate (excluding
short-term securities)
Total returng 3.9% 6.9% 4.3% 4.1% 4.3% 7.9% 5.2% 4.5%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was March 20, 1995.
c The Fund's fiscal year-end was changed from June 30 to May 31, effective 1996.
d Six months ended Nov. 30, 1997. (Unaudited).
e Effective fiscal year 1996, the expense ratio is based on total expenses of
the Fund before reduction of earnings credits on cash balances.
f Adjusted to an annual basis.
g Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
Government Income Portfolio
Nov. 30, 1997
Assets
(Unaudited)
Investments in securities, at value (Note 1)
<S> <C>
(identified cost $ 2,916,716,941) $2,982,973,037
Cash in bank on demand deposit 29,079,723
Accrued interest receivable 28,273,625
Receivable for investment securities sold 148,052,355
U.S. government securities held as collateral (Note 5) 48,924,229
----------
Total assets 3,237,302,969
-------------
Liabilities
Payable for investment securities purchased 271,327,816
Payable upon return of securities loaned (Note 5) 522,438,916
Accrued investment management services fee 65,401
Other accrued expenses 25,568
Option contracts written, at value (premium received $68,470,442) (Note 6) 67,402,593
----------
Total liabilities 861,260,294
-----------
Net assets $2,376,042,675
==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Government Income Portfolio
Six months ended Nov. 30, 1997
Investment income
(Unaudited)
Income:
<S> <C>
Interest $ 79,006,597
-------------
Expenses (Note 2):
Investment management services fee 5,819,399
Compensation of board members 8,105
Custodian fees 64,291
Audit fees 15,750
Other 22,475
------
Total expenses 5,930,020
---------
Investment income-- net 73,076,577
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 22,460,870
Financial futures contracts (39,616,512)
Option contracts written (Note 6) (3,646,628)
----------
Net realized gain (loss) on investments (20,802,270)
Net change in unrealized appreciation (depreciation) on investments 48,680,255
----------
Net gain (loss) on investments 27,877,985
----------
Net increase (decrease) in net assets resulting from operations $100,954,562
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
Government Income Portfolio
Operations
Six months ended For the period from
Nov. 30, 1997 June 10, 1996* to
(Unaudited) May 31, 1997
<S> <C> <C>
Investment income (loss)-- net $ 73,076,577 $ 124,973,996
Net realized gain (loss) on investments (20,802,270) (221,211)
Net change in unrealized appreciation (depreciation) on investments 48,680,255 22,413,297
---------- ----------
Net increase (decrease) in net assets resulting from operations 100,954,562 147,166,082
Net contributions (withdrawals) from partners 71,105,143 2,056,776,888
---------- -------------
Total increase (decrease) in net assets 172,059,705 2,203,942,970
Net assets at beginning of period (Note 1) 2,203,982,970 40,000
------------- ------
Net assets at end of period $2,376,042,675 $2,203,982,970
============== ==============
*Commencement of operations
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
Government Income Portfolio
(Unaudited as to Nov. 30, 1997)
1
Summary of
significant
accounting policies
Government Income Portfolio (the Portfolio) is a series of Income Trust
(the Trust) and is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company.
Government Income Portfolio seeks to provide a high level of current
income and safety of principal consistent with investment in U.S.
government and government agency securities. The Declaration of Trust
permits the Trustees to issue non-transferable interests in the Portfolio.
On April 15, 1996, American Express Financial Corporation (AEFC)
contributed $40,000 to the Portfolio. Operations did not formally commence
until June 10, 1996, at which time an existing fund transferred its assets
to the Portfolio in return for an ownership percentage of the Portfolio.
Significant accounting polices followed by the Portfolio are summarized
below:
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities
traded on national securities exchanges or included in national market
systems are valued at the last quoted sales price. Debt securities are
generally traded in the over-the-counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in
these securities or by an independant pricing service. Securities for
which market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current
interest rates; those maturing in 60 days or less are valued at amortized
cost.
Option transactions
In order to produce incremental earnings, protect gains and facilitate
buying and selling of securities for investment purposes, the Fund may buy
and sell put and call options and write covered call options on portfolio
securities and may write cash-secured put and call options on U.S.
government securities. The Fund also may purchase mortgage-backed security
(MBS) put spread options and write covered MBS call spread options. MBS
spread options are based upon the changes in the price spread between a
specified mortgage-backed security and a like-duration Treasury security.
The risk in writing a call option is that the Fund gives up the
opportunity of profit if the market price of the security increases. The
risk in writing a put option is that the Fund may incur a loss if the
market price of the security decreases and the option is exercised. The
risk in buying an option is that the Fund pays a premium whether or not
the option is exercised. The Fund also has the additional risk of not
being able to enter into a closing transaction if a liquid secondary
market does not exist. The Fund also may write over-the-counter options
where the completion of the obligation is dependent upon the credit
standing of the other party.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The
Fund will realize a gain or loss upon expiration or closing of the option
transaction. When options on debt securities or futures are exercised, the
Fund will realize a gain or loss. When other options are exercised, the
proceeds on sales for a written call option, the purchase cost for a
written put option or the cost of a security for a purchased put or call
option is adjusted by the amount of premium received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market,
the Portfolio may buy and sell financial futures contracts. Risks of
entering into futures contracts and related options include the
possibility that there may be an illiquid market and that a change in the
value of the contract or option may not correlate with changes in the
value of the underlying securities.
Upon entering into a futures contract, the Portfolio is required to
deposit either cash or securities in an amount (initial margin) equal to a
certain percentage of the contract value. Subsequent payments (variation
margin) are made or received by the Portfolio each day. The variation
margin payments are equal to the daily changes in the contract value and
are recorded as unrealized gains and losses. The Portfolio recognizes a
realized gain or loss when the contract is closed or expires.
Securities purchased on a when-issued basis
Delivery and payment for securities that have been purchased by the
Portfolio on a forward-commitment or when-issued basis can take place one
month or more after the transaction date. During this period, such
securities are subject to market fluctuations, and they may affect the
Portfolio's gross assets the same as owned securities. The Portfolio
designates cash or liquid high-grade short-term debt securities at least
equal to the amount of its commitment. As of Nov. 30, 1997, the Portfolio
had entered into outstanding when-issued or forward commitments of
$150,340,573.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership
and each investor in the Portfolio is treated as the owner of its
proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Portfolio. Accordingly, as a
"pass-through" entity, the Portfolio does not pay any income dividends or
capital gain distributions.
Other
Security transactions are accounted for on the date securities are
purchased or sold. Interest income, including level-yield amortization of
premium and discount, is accrued daily.
2
Fees and
expenses
The Trust, on behalf of the Portfolio, has entered into an Investment
Management Services Agreement with (AEFC) for managing its portfolio.
Under this agreement, AEFC determines which securities will be purchased,
held or sold. The management fee is a percentage of the Portfolio's
average daily net assets in reducing percentages from 0.52% to 0.395%
annually.
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees to be paid to an
affiliate of AEFC, audit and certain legal fees, fidelity bond premiums,
registration fees for units, office expenses, consultants' fees,
compensation of trustees, corporate filing fees, expenses incurred in
connection with lending securities of the Portfolio, and any other
expenses properly payable by the Trust or Portfolio and approved by the
board.
Pursuant to a Placement Agency Agreement, American Express Financial
Advisors Inc. acts as placement agent of the units of the Trust.
3
Securities
transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $2,484,312,386 and $2,323,839,728
respectively, for the period from June 1, 1997 to Nov. 30, 1997. For the
same period, the portfolio turnover rate was 89%. Realized gains and
losses are determined on an identified cost basis.
4
Interest rate
futures contracts
At Nov. 30, 1997, investments in securities included securities valued at
$46,237,690 that were pledged as collateral to cover initial margin
deposits on 4,208 open purchase contracts and 5,597 open sale contracts.
The market value of the open purchase contracts at Nov. 30, 1997 was
$452,952,970 with a net unrealized gain of $1,377,395. The market value of
the open sale contracts at Nov. 30, 1997 was $645,244,375 with a net
unrealized loss of $3,633,969. See Summary of significant accounting
policies.
5
Lending of
portfolio securities
At Nov. 30, 1997, securities valued at $508,045,552 were on loan to
brokers. For collateral, the Portfolio received $473,514,687 in cash and
U.S. government securities valued at $48,924,229. Income from securities
lending amounted to $791,225 for the period ended Nov. 30, 1997. The risks
to the Portfolio of securities lending are that the borrower may not
provide additional collateral when required or return the securities when
due.
<PAGE>
<TABLE>
<CAPTION>
6
Options contracts
written
The number of contracts and premium amounts associated with option
contracts written is as follows:
Period ended Nov. 30, 1997
Puts Calls MBS Puts and Calls
Contracts Premium Contracts Premium Contracts Premiums
<S> <C> <C> <C> <C> <C> <C>
Balance May 31, 1997 2,209 $ 2,598,052 4,067 $ 6,810,256 13,000 $ 757,616
Opened 8,907 11,819,477 11,941 18,536,024 46,150 109,104,140
Closed (8,261) (10,084,501) (8,397) (12,936,837) (20,700) (52,279,257)
Exercised (42) (35,228) (1,686) (2,710,856) (18,700) (441,483)
Expired (148) (180,885) (1,876) (2,419,670) (4,250) (66,406)
---- -------- ------ ---------- ------ -------
Balance Nov. 30, 1997 2,665 $ 4,116,915 4,049 $ 7,278,917 15,500 $57,074,610
See Summary of significant accounting policies.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
Government Income Portfolio
Nov. 30, 1997 (Unaudited)
(Percentages represent
value of investments
compared to net assets)
Bonds (110.9%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
U.S. government obligations (55.1%)
<S> <C> <C> <C> <C>
U.S. Treasury 5.125% 1998 $ 78,000,000 $ 77,592,840
5.375 1998 10,000,000 9,990,500
5.625 1998 55,000,000 54,954,900
5.750 2003 18,500,000 18,418,230
5.875 1999-05 47,600,000(h) 47,624,487
6.00 1999-00 147,750,000(h) 148,391,820
6.25 2000-21 12,100,000(e,f,h) 12,239,147
6.375 2000-27 302,850,000(h) 310,683,815
6.50 2005 5,000,000(e,f) 5,183,050
6.625 2002 48,500,000 49,747,850
6.75 2000 100,750,000(h) 102,915,117
7.00 2006 8,500,000(h) 9,118,035
7.125 2000 32,000,000 32,889,600
7.75 2000-01 118,250,000(e,f,h) 123,402,070
8.125 2019 31,000,000(h) 38,363,430
8.50 2000 22,000,000 23,224,080
10.75 2003-05 19,750,000(e,f) 24,403,215
11.875 2003 66,000,000 85,635,660
12.375 2004 7,000,000 9,412,690
TIPS 3.625 2002 500,000(i) 504,083
Collateralized Mtge Securities Corp 13.45 2020 3,750,000 4,003,125
Resolution Funding Corp 8.125 2019 8,000,000 9,807,440
Zero Coupon 6.13 2008 48,500,000(b) 25,750,105
6.15 2002 11,170,000(b) 8,695,622
6.36 2003 16,000,000(b) 11,404,160
7.20 2018 8,000,000(b) 2,265,120
7.28 2017 44,350,000(b) 13,132,220
7.37 2017 79,350,000(b) 22,824,228
7.43 2019 84,500,000(b) 22,395,027
7.87 2018 7,500,000(b) 2,026,608
8.04 2012 8,400,000(b) 3,363,360
Total 1,310,361,634
Mortgage-backed securities (55.8%)
Federal Home Loan Mortgage Corporation (20.0%)
6.00 2025 156,250,000(j) 149,609,375
6.00 2026 19,536,798 18,761,187
6.50 2003-09 7,719,350 7,705,723
7.00 2010 18,528,806 18,759,490
7.50 2024 7,710,626 7,909,637
8.00 2023-25 64,726,545 67,197,468
8.50 2022-27 20,100,488 21,012,531
9.00 2025-26 41,355,760 44,159,227
14.24 2027 199,625,260(b) 3,485,457
Collateralized Mtge Obligation 4.00 2023 11,817,347 11,172,711
6.75 2022 22,000,000 21,942,580
8.25 2024 33,335,995 36,311,899
8.50 2022 9,150,000 10,175,349
Interest Only 10.00 2020 266,685(c) 84,238
Principal Only 1.08 2027 6,187,259(g) 5,095,765
1.32 2022 4,997,974(g) 4,050,858
1.48 2027 2,356,107(g) 1,850,416
2.47 2023 13,000,000(g) 8,013,281
2.48 2008 10,119,749(g) 8,238,108
2.92 2009 5,979,874(g) 4,554,982
3.41 2003-07 21,486,331(g) 17,631,882
3.82 2008 8,328,020(g) 6,046,923
Total 473,769,087
Federal National Mortgage Association (35.2%)
6.00 2008-27 36,256,755 34,883,125
6.50 2023-27 140,963,111(e,f) 139,078,437
7.00 2023-27 159,022,723 159,454,842
7.50 2025-26 72,316,529 73,889,414
8.00 2021-27 35,172,133 36,430,268
8.50 2007-26 200,875,613 210,783,243
9.00 2023-26 24,096,455 25,799,104
Collateralized Mtge Obligation 3.00 2019 11,250,000 10,292,513
4.50 2010 8,204,208 7,509,230
4.70 2022 5,436,398 5,392,744
5.00 2024 6,507,327 6,265,906
5.50 2008 10,693,282 10,286,617
6.00 2008 6,166,539 6,084,709
6.50 2017-25 13,330,768 13,315,398
7.00 2012 6,130,247 6,172,668
8.50 2021 12,350,000 13,652,753
9.00 2020 11,666,000 12,818,484
Interest Only 8.50 2022 15,129,619(c) 4,471,440
9.50 2018-22 14,086,847(c) 4,245,834
10.00 2018-22 46,501,373(c) 13,621,981
10.50 2021 11,732,705(c) 3,998,961
Inverse Floater 6.45 2023 6,052,314(d) 5,458,340
7.58 2024 4,913,659(d) 4,055,439
Principal Only 1.00 2020-21 6,389,197(g) 6,048,962
1.25 2023 6,436,532(g) 6,105,050
3.08 2023 10,788,439(g) 6,080,297
3.85 2008 7,000,000(g) 5,087,031
4.95 2023 9,558,975(g) 5,053,830
Total 836,336,620
Government National Mortgage Association (0.6%)
7.50 2025 13,882,693 14,209,075
11.00 2019 301,483 336,657
Total 14,545,732
Total bonds
(Cost: $2,568,197,121) $2,635,013,073
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Options purchased (0.2%)
Issuer Number Exercise Expiration Value(a)
of contracts price date
Put
<S> <C> <C> <C> <C>
MBS 8,500 $103 Dec. 1997 $ 9,775
MBS 10,000 97 Jan. 1998 250,000
U.S. Treasury Bonds March 98 340 108 Feb. 1998 53,125
Call
U.S. Treasury Bonds March 98 1,300 109 Feb. 1998 3,473,431
Total options purchased
(Cost: $4,385,854) $3,786,331
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Short-term securities (14.5%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agencies (10.2%)
Federal Home Loan Mtge Corp Disc Nts
<S> <C> <C> <C>
12-05-97 5.47% $ 9,400,000 $ 9,391,446
12-11-97 5.47 8,300,000 8,284,922
12-11-97 5.48 20,400,000 20,362,872
12-11-97 5.50 6,000,000 5,989,020
12-11-97 5.50 50,000,000 49,908,500
12-22-97 5.48 5,900,000 5,879,456
Federal Natl Mtge Assn Disc Nts
12-22-97 5.51 49,000,000 48,850,550
12-22-97 5.51 17,000,000 16,948,150
12-22-97 5.51 50,000,000 49,824,625
12-22-97 5.52 27,400,000 27,299,533
Total 242,739,074
Certificates of deposit (4.3%)
ABN Yankee
04-17-98 6.27 25,000,000 25,026,043
Canadian Imperial Bank Yankee
03-23-98 6.00 25,000,000 25,000,000
Societe Generale Yankee
03-20-98 5.98 41,400,000 41,399,042
04-15-98 6.25 10,000,000 10,009,474
Total 101,434,559
Total short-term securities
(Cost: $344,133,966) $ 344,173,633
Total investment in securities
(Cost: $2,916,716,941)(k) $2,982,973,037
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(c) Interest-only represents securities that entitle holders to receive only
interest payments on the underlying mortgages. The yield to maturity of an
interest-only is extremely sensitive to the rate of principal payments on the
underlying mortgage assets. A rapid (slow) rate of principal repayments may have
an adverse (positive) effect on yield to maturity. The principal amount shown is
the notional amount of the underlying mortgages.
(d) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a decline
(increase) in the LIBOR (London InterBank Offering Rate) Index. Interest rate
disclosed is the rate in effect on Nov. 30, 1997.
(e) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 4 to the financial statements):
Type of security Notional amount
Purchase contracts
U.S. Treasury Note March 98, 5-year notes $74,700,000
U.S. Treasury Note Dec. 97, 5-year notes 308,100,000
U.S. Treasury Note March 98, 2-year notes 38,000,000
Sale contracts
U.S. Treasury Note March 98, 10-year notes 122,100,000
U.S. Treasury Note Dec. 97, 10-year notes 157,900,000
U.S. Treasury Bonds March 98 235,400,000
U.S. Treasury Bonds Dec. 97 44,300,000
(f) At Nov. 30, 1997, securities valued at $46,237,690 were held to cover open
call options written as follows:
Issuer Number of Exercise Expiration Value (a)
contracts price date
U.S. Treasury Bonds March 98 170 $117 Feb. 1998 $ 393,125
U.S. Treasury Bonds March 98 786 118 Dec. 1997 1,252,688
U.S. Treasury Bonds March 98 425 119 Dec. 1997 425,000
U.S. Treasury Bonds March 98 500 116 Feb. 1998 1,953,125
U.S. Treasury Bonds March 98 1,063 118 Feb. 1998 2,790,375
U.S. Treasury Bonds March 98 1,105 120 Feb. 1998 1,830,156
Mortgage-Backed Security
(MBS) Spread 5,500 103 Dec. 1997 56,873,437
Mortgage-Backed Security
(MBS) Spread 10,000 98 Jan. 1998 312,500
At Nov. 30, 1997, cash or short-term securities were designated to cover open
put options written as follows:
Issuer Number of Exercise Expiration Value (a)
contracts price date
U.S. Treasury Bonds March 98 1,085 $117 Dec. 1997 $305,156
U.S. Treasury Bonds March 98 650 114 Feb. 1998 304,688
U.S. Treasury Bonds March 98 760 116 Feb. 1998 688,750
U.S. Treasury Bonds March 98 170 118 Feb. 1998 273,593
(g) Principal only represents securities that entitle holders to receive only
principal payments on the underlying mortgages. The yield to maturity of a
principal only is sensitive to the rate of principal payments on the underlying
mortgage assets. A slow (rapid) rate of principal repayments may have an adverse
(positive) effect on yield to maturity. Interest rate disclosed represents
current yield based upon the current cost basis and estimated timing of the
future cash flows.
(h) Security is partially or fully on loan. See Note 5 to the financial
statements.
(i) U.S. Treasury inflation-protection securities (TIPS) are securities in which
the principal amount is adjusted for inflation and the semi-annual interest
payments equal a fixed percentage of the inflation-adjusted principal amount.
(j) At Nov. 30, 1997, the cost of securities purchased on a when-issued basis
was $150,340,573.
(k) At Nov. 30, 1997, the cost of securities for federal income tax purposes was
approximately $2,916,717,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation......................................$73,157,000
Unrealized depreciation.......................................(6,901,000)
----------
Net unrealized appreciation..................................$66,256,000
<PAGE>
Board members and officers
Independent
board members and officers
Chariman of the board
William R. Pearce*
Chairman of the board, Board Services Corporation (provides
administrative services to boards including the boards of the IDS and
IDSLife funds and Master Trust portfolios).
H. Brewster Atwater, Jr.
Former chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public Policy
Research.
Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.
Anne P. Jones
Attorney and telecommunications consultant.
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Former chairman and chief executive officer,
Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Officer
Vice president,
general counsel
and secretary
Leslie L. Ogg*
President, treasurer and corporate secretary of Board
Services Corporation.
Board members and officers associated with AEFC
President
John R. Thomas*
Senior vice president, AEFC.
William H. Dudley*
Senior advisor to the chief executive officer, AEFC.
David R. Hubers*
President and chief executive officer, AEFC.
Officers associated with AEFC
Vice president
Peter J. Anderson*
Senior vice president, AEFC
Treasurer
Matthew N. Karstetter*
Vice president, AEFC
* Interested person as defined by the Investment Company Act of 1940.
<PAGE>
IDS mutual funds
Global/International funds
Funds in this group seek capital growth and/or income by investing primarily in
foreign securities. Foreign investments may be subject to currency fluctuations
and political and economic risks of the countries in which the investments are
made. They are high risk mutual funds with a potential for high reward.
IDS Emerging Markets Fund
Invests in a Portfolio comprised primarily of stocks of companies in developing
countries throughout the world that are believed to offer growth potential.
Seeks to provide long-term growth of capital.
(icon of) world with countries
IDS Global Growth Fund
Invests in a Portfolio comprised primarily of stocks of companies throughout the
world that are positioned to meet market needs in a changing world economy.
These companies offer above-average potential for long-term growth.
(icon of) world
IDS International Fund
Invests primarily in common stocks of foreign companies that offer potential for
superior growth. The Fund may invest up to 20% of its assets in the U.S. market.
(icon of) three flags
IDS Global Balanced Fund
Invests in stocks and bonds in, for the most part, major markets throughout the
world, including the U.S. Seeks to provide a balance of growth of capital and
current income.
(icon of) scale of globes
IDS Global Bond Fund
Invests in a Portfolio comprised primarily of debt securities of U.S. and
foreign issuers to seek high total return through income and growth of capital.
(icon of) globe
Growth funds
Funds in this group seek capital growth, primarily from common stocks. They are
high risk mutual funds with a potential for high reward.
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic companies that
explore for, mine and process or distribute gold and other precious metals. A
highly aggressive and speculative fund that seeks long-term growth of capital.
(icon of) cart of precious gems
IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies emphasizing
technological innovation and productivity enhancement. Buys and holds larger
growth-oriented stocks.
(icon of) ship
IDS Small Company Index Fund
Invests in all or a representative group of the equity securities comprising the
S&P SmallCap 600 Index, as it strives to provide long-term capital appreciation.
(icon of) building
IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected for their
potential for above-average growth. Above-average means that their growth
potential is better, in the opinion of the portfolio's investment manager, than
the Standard & Poor's Corporation (S&P) 500 Stock Index.
(icon of) chess piece
IDS Research Opportunities Fund
Invests in a Portfolio comprised primarily of equity securities of companies
included in the S&P 500 Index that are believed to have strong growth potential.
The Portfolio is managed using a research methodology by the Research Department
of AEFC. Goal is long-term appreciation.
(icon of) magnifying glass
IDS Growth Fund
Invests in a Portfolio comprised primarily of companies that have above-average
potential for long-term growth as a result of new management, marketing
opportunities or technological superiority.
(icon of) trees
IDS New Dimensions Fund
Invests in a Portfolio comprised primarily of companies with
significant growth potential due to superiority in
technology, marketing or management. The Fund frequently
changes its industry mix.
(icon of) dimension
IDS Progressive Fund
Invests primarily in undervalued common stocks. The Fund holds stocks for the
long term with the goal of capital growth.
(icon of) shooting star
Growth & income funds
These funds focus on securities of medium to large, well-established companies
that offer long-term growth of capital and reasonable income from dividends and
interest. Foreign investments may be subject to currency fluctuations and
political and economic risks of the countries in which the investments are made.
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks, higher-yielding
equities and bonds. Seeks growth of capital and income.
(icon of) three pine trees
IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities purchased are
those recommended by our research analysts as the best from each industry
represented on the index. Offers potential for long-term growth as well as
dividend income.
(icon of) ribbon
IDS Managed Allocation Fund
Invests in a Portfolio comprised primarily of U.S. equity securities, U.S. and
foreign debt securities, foreign equity securities and money market instruments.
The Fund provides diversification among these major investment categories and
has a target mix that represents the way the Fund's investments will be
allocated over the long term. Seeks maximum total return.
(icon of) gyroscope
IDS Stock Fund
Invests in a Portfolio comprised primarily of common stock of companies
representing many sectors of the economy. Seeks current income and growth of
capital.
(icon of) building with columns
IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential for growth
of capital and income.
(icon of) three growing flowers
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek high current
income and growth of income and capital with reduced volatility.
(icon of) light bulb
IDS Diversified Equity Income Fund
Invests in a Portfolio comprised primarily in high-yielding common stocks to
seek high current income and, secondarily, to benefit from the growth potential
offered by stock investments.
(icon of) two puzzle pieces
IDS Mutual
Invests in a Portfolio which seeks to balance between common stocks and senior
securities (preferred stocks and bonds). Seeks a balance of growth of capital
and current income.
(icon of) scale of justice
Income funds
The funds in this group invest their assets primarily in corporate bonds or
government securities to seek interest income. Secondary objective is capital
growth. Risk varies by bond quality.
IDS Extra Income Fund
Invests in a Portfolio comprised mainly of long-term, high-yielding corporate
fixed-income securities in the lower rated, higher risk bond categories to seek
high current income. Secondary objective is capital growth.
(icon of) two coins
IDS Bond Fund
Invests mainly in corporate bonds, at least 50% in the higher rated, lower risk
bond categories, or the equivalent, and in government bonds.
(icon of) Greek column
IDS Selective Fund
Invests in a Portfolio comprised primarily of high-quality corporate bonds and
other highly rated debt instruments including government securities and
short-term investments. Seeks current income and preservation of capital.
(icon of) skyline
IDS Federal Income Fund
Invests in a Portfolio comprised primarily of securities issued or guaranteed as
to the timely payment of principal and interest by the U.S. government, its
agencies and instrumentalities. Seeks a high level of current income and safety
of principal consistent with its type of investments.
(icon of) shield with eagle head
Tax-exempt income funds
These funds provide tax-free income by investing in municipal bonds. The income
is generally free from federal income tax, but a portion of the income may be
subject to state and local taxes. Risk varies by bond quality.
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government units, with at
least 75% in the four highest rated, lowest risk bond categories.
(icon of) shield with Greek column
IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to the timely
payment of principal and interest. The insurance feature minimizes credit risk
of the Fund but does not guarantee the market value of the Fund's shares.
(icon of) shield with star
IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to provide
income to residents of each respective state that is exempt from federal, state
and local income taxes. (New York is the only state that is exempt at the local
level.)
(icon of) shield with U.S. enclosed
IDS High Yield Tax-Exempt Fund
Invests in a Portfolio comprised primarily of medium- and lower-quality
municipal bonds and notes. Lower-quality securities generally involve greater
risk of principal and income.
(icon of) shield with basket of apples enclosed
IDS Intermediate Tax-Exempt Fund
Invests in mainly investment-grade bonds and other debt securities with
intermediate-term maturities issued by state and local government units. Goal is
to seek a high level of current income exempt from federal taxes.
(icon of) shield with tree enclosed
Money market funds
These money market funds have three main goals: conservation of capital,
constant liquidity and the highest possible current income consistent with these
objectives. An investment in these funds is neither insured nor guaranteed by
the U.S. government, and there can be no assurance that these funds will be able
to maintain a stable net asset value of $1.00 per share. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial paper,
bankers' acceptances, certificates of deposit (CDs) and other bank securities.
(icon of) piggy bank
IDS Tax-Free Money Fund
Invests primarily in short-term bonds and notes issued by state and local
governments to seek high current income exempt from federal income taxes.
(icon of) shield with piggy bank enclosed
For more complete information about any of these funds, including charges and
expenses, you can obtain a prospectus by contacting your financial advisor or
writing to American Express Shareholder Service, P.O. Box 534, Minneapolis, MN
55440-0534. Read it carefully before you invest or send money.
<PAGE>
Quick telephone reference
American Express Redemptions and exchanges, National/Minnesota
Telephone Transaction dividend payments or 800-437-3133
Service reinvestments and automatic
payment arrangements Mpls./St. Paul area:
671-3800
American Express Fund performance, objectives 612-671-3733
Shareholder Service and account inquiries
TTY Service For the hearing impaired 800-846-4852
American Express Automated account information National/Minnesota
Infoline (TouchTone(R) phones only), 800-272-4445
including current fund prices
and performance, account values Mpls./St. Paul area:
and recent account transactions 671-1630
AMERICAN EXPRESS Financial Advisors
IDS Federal Income Fund
IDS Tower 10
Minneapolis, MN 55440-0010